What is a Merchant of Record (MoR)?

And why the MoR model is an ideal solution for SaaS companies looking to simplify end-to-end ecommerce

Managing international payments, sales tax, and various legal obligations is costly and can quickly drain an organization’s resources. 

Fortunately, ecommerce doesn’t have to be so complicated. With the merchant of record (MoR) model, SaaS companies can offload operational work to a partner that processes and manages payments on their behalf, allowing them to focus on other aspects of growing their business. 

In this guide, we explain what an MoR is, how the MoR model works, and what businesses need to consider when choosing a merchant of record for SaaS. 

• Introduction
• What is a Merchant of Record?
• How Does the Merchant of Record Model Work?
• Benefits of Using a Third-Party MoR
• Is Cleverbridge a Merchant of Record?
• Merchant of Record FAQs

Introduction

The growth of ecommerce in the 21st century is hard to ignore, but easy to understand. Consumers enjoy the convenience of transacting from their computer or mobile device. Businesses, in turn, welcome the opportunity to scale beyond physical locations and easily expand into different international markets.

For SaaS companies, whether B2C or B2B, the growth of global ecommerce has created endless roads of opportunity. This is significantly aided by the fact that software requires zero shipping, fulfillment, or other logistics — cost considerations that ecommerce sites dealing in physical goods can’t avoid.

This doesn’t mean, however, that digital SaaS sales are not fraught with complexity. While setting up an ecommerce site and partnering with a payment service provider (PSP) like Stripe may sound simple enough, scaling your services and expanding into new markets make the process of selling online only more difficult as your business grows. 

To successfully manage all aspects of ecommerce across all markets, many businesses choose to partner with a merchant of record (MoR). 

What is a Merchant of Record?

In simplest terms, a merchant of record is a legal entity that sells goods or services to a customer. Any business can act as its own MoR or outsource the responsibility to a reseller. 

Merchants of Record are commonly discussed in an ecommerce context, although they are far more ubiquitous than that. The truth is, whenever products or services are sold, an MoR is the one processing the transaction. For example, when Sony sells electronics directly to its customers, it is acting as its own MoR. In the same token, when Best Buy is selling Sony products, it is also performing the role of MoR as a reseller.

The reason many ecommerce businesses use a third-party MoR is due to the complexity of selling online, which goes far beyond payment processing. These additional responsibilities include tax/VAT handling, currency exchange, regulatory and export compliance, fraud prevention, and post-purchase customer service (e.g., refunds and chargebacks). 

By taking on all of these responsibilities, an MoR, whether in-house or outsourced, assumes any liability related to the transaction. As such, a merchant of record must be well-versed in both financial and legal matters. These responsibilities are magnified if an MoR is transacting with multiple international markets, due to differences across jurisdictions.

How Does the Merchant of Record Model Work?

When looking to partner with an MoR reseller (an arrangement commonly referred to as the merchant of record model), you must first consider all of the unique responsibilities that come with being a merchant of record. While these do not all occur at once (i.e., at the point of sale), they are all, more or less, mandatory requirements for a business to sell products and services online.

The specifics of all these functions, however, will depend on what you are selling and, more importantly, to whom. Tax and compliance rules vary from country to country, so the more markets you expand to, the more sophisticated the MoR needs to be. 

Let’s break down the different functions of an MoR. 

Checkout Experience

The first step in any transaction, of course, is the checkout experience. An MoR must host a branded storefront and checkout page (and optimize both areas) to ensure successful conversions. Many businesses choose a third-party MoR to host the checkout experience since MoR resellers can leverage vast amounts of historical data and expertise to surface the most relevant payment methods, localize address fields, and otherwise tailor the cart to individual users based on location or browser settings.

MoRs must be able to optimize checkout experiences at scale, and should always give customers the flexibility to transact in their preferred local currency and payment method by orchestrating various global acquirers.

Payment Processing

Payment processing is the most commonly understood function of an MoR, and its importance cannot be understated. If a business acts as its own MoR, it can either set up multiple merchant accounts (exclusive business bank accounts for accepting digital payments) or partner with a PSP.

An MoR is responsible for accepting various global payment methods (not just credit cards, as preferred options differ from region to region), managing relationships with payment and banking providers, ensuring successful transactions, and negotiating the fees associated with each transaction. A third-party MoR handles all of this for a business and makes it easy to support a wide range of payment methods and local currencies wherever the business operates.

Subscription Management

As we know very well in SaaS, the customer relationship does not end after the initial purchase. Subscription management is necessary to engage and nurture customers throughout the lifecycle, ensuring successful renewals and, ideally, upsells or cross-sells. Of course, all of the same responsibilities regarding taxes, compliance, and fraud apply to any of these ensuing transactions.

While subscription management does not technically have to be handled by a third-party MoR, it is commonly bundled alongside other functions since an MoR reseller is uniquely well-positioned to prevent churn and understand specific regulations around subscription disclosures and pre-billing notifications. 

Invoicing and Quoting

An MoR provides customers with regionally compliant invoices and can also facilitate self-service quoting. In the MoR model, there are technically two invoices for every transaction: one invoice between the business and the MoR (a tax/VAT-exempt transaction), and one invoice between the MoR and the customer. Third-party MoRs simplify the invoicing process since businesses only need to worry about one client — the MoR.

The business’s CRM and other systems are populated with all customer and transaction details except full credit card numbers (thereby shielding the business from a strict PCI-DSS compliance burden).

Sales Tax and VAT Handling

Sales tax and VAT obligations for digital goods continuously change, and as a business grows this becomes increasingly important to handle. Since taxes on digital goods (e.g., SaaS products) are almost always calculated based on the customer’s location rather than the seller’s, an MoR must be able to calculate, collect, and remit taxes wherever its customers are.

Even if a business doesn’t think it has tax obligations in a certain part of the world, that jurisdiction may think otherwise, a scenario that can quickly become complicated and costly (especially as a business scales internationally). MoR resellers solve this as the party responsible for handling sales tax and VAT globally on behalf of a business.

Fraud Prevention

A risk for any company selling goods or services online, fraud only becomes more of a threat as you scale and expand. MoRs are responsible for minimizing fraudulent transactions to protect their business and maintain good standing with various global acquirers. Third-party MoRs typically have rules-based or machine learning-based fraud engines, along with shared lists of known fraudsters to use when screening transactions at scale.

Importantly, resellers must account for evolving types of fraud, as bad actors are constantly developing new ways to circumvent existing protections. 

Regulatory and Export Compliance

There are certain legal obligations that MoRs must meet to ensure all transactions (and associated services) comply with national and local regulations. This can have a wide scope depending on the region, including rules on exports and customer data privacy protection. Examples of the latter include PCI-DSS (Payment Card Industry and Data Security Standard), which is applicable to all major credit cards, and General Data Protection Regulation (GDPR), which is specific to the EU.

A third-party MoR monitors the ever-changing regulatory landscape and ensures that businesses are compliant as laws change and new rules are enacted.

Chargeback Protection

MoRs must manage the risk associated with chargebacks, whether they're legitimate customer refund requests, unwarranted (e.g., accidental) transactions, or unauthorized, potentially fraudulent claims. This is a vital necessity for protecting a business’s bottom line from malicious actors and transactions, but also a key element of upholding satisfactory customer service.

Analytics and Reporting

Providing dashboards to monitor, interpret, and optimize key ecommerce and subscription KPIs (e.g., conversion rates, NRR, and various other metrics) has become table stakes for a robust third-party MoR. Any merchant of record would need to track the performance of its online business, but the MoR model consolidates all of these insights into a single location (instead of having them scattered across different platforms). This gives companies a more holistic, 360-degree view from which to manage and run their business. 

End-Customer Support

An MoR’s biggest customer service responsibility pertains to disputes. In addition to refunds, chargeback claims, and other forms of remittance, a customer may have billing and fulfillment-related inquiries or, in some instances, may want a human in the loop. Resellers are obligated to handle these types of requests, but some third-party MoRs may offer an optional, more thorough level of customer support to address complex inquiries that would otherwise fall on a business’s CS team. 

Benefits of Using a Third-Party MoR

Increase Profitability

Since an MoR reseller can perform so many different functions, namely functions that often require expensive tools and/or expertise, it stands out as a cost-effective option for SaaS companies exploring ecommerce. By leveraging the MoR model, you can lower operational costs and reduce the strain on internal teams, making your business more lean, efficient, and profitable. In addition to consolidating responsibilities, a third-party MoR’s ability to scale your digital sales and facilitate expansion into new markets allows you to increase revenue, leading to a more sustainable business in the long run. 

Mitigate Risk

There are several ways to put your business at risk if you are not properly managing global ecommerce. Fraud, of course, is the most commonly assumed risk when a business does not have adequate protections in place. Beyond dealing with fraudsters, there are also the risks inherent in failing to follow tax laws and compliance regulations as you expand from market to market. An MoR can take the entirety of risk management off your plate, while also assuming any liability related to transactions. 

Become Global Instantly

While international expansion is possible without an MoR reseller, it will not only be more expensive and complex, it will also take more time. Having to learn the different payment, tax, compliance, and localization intricacies of one new market is hard enough — doing it across hundreds of countries and territories is quite another thing. With the MoR model, you can expand into different markets instantly, thanks to a significantly reduced and simplified learning curve, afforded by the functions (payment processing, sales tax compliance, etc.) a third-party MoR assumes. 

Reduce Your Ecommerce Stack to One

By partnering with an MoR reseller, SaaS companies can significantly reduce the amount of complexity and tech debt they can encounter down the road. That’s because instead of a patchwork of disparate components, companies can leverage a robust all-in-one solution that seamlessly integrates with existing systems. The MoR model simplifies end-to-end ecommerce without using up valuable internal resources — music to the ears of any SaaS company eager to scale, but not at the expense of core business initiatives. 

Is Cleverbridge a Merchant of Record?

Yes. Cleverbridge is the all-in-one ecommerce platform for global subscription businesses, and acting as a merchant of record is a key way we provide value to our clients. By partnering with Cleverbridge as your MoR, you can offload all of the operational work that comes with selling products online, as detailed above. We work with B2B and B2C companies, and understand the growing need among both for an end-to-end solution that automates digital buying experiences throughout the entire customer lifecycle. 

Merchant of Record FAQs

What types of businesses benefit from an MoR reseller?

Companies that sell SaaS or other digital products are generally more accustomed to cross-border transactions and often have international sales as a key part of their go-to-market. Since selling across borders involves so much complexity and operational work, these businesses are typically the ones to benefit most from partnering with an MoR reseller. Although SaaS companies specifically tend to gravitate to the MoR model, any ecommerce business (no matter what or where they sell) can benefit from outsourcing responsibilities to a third party. 

When should a business use a third-party MoR?

A business should engage with an MoR reseller when they’re looking to introduce ecommerce, or whenever their current capacity to support ecommerce in-house has been exceeded. There are several examples of this, including: a business that is launching ecommerce, but doesn’t know where or how to start; a business that is looking to expand into new international markets, but is not equipped to handle global transactions; a business that is scaling its product offering and not prepared for an increase in manual, human-led sales or services; or an established business already leveraging some form of ecommerce, but seeking a third-party MoR to offload responsibilities in an effort to lower costs or preserve resources. 

How do customer relationships work in the MoR model?

While the business that provides the product or service ultimately maintains the customer relationship, an MoR reseller has certain obligations related to the initial and any ensuing transactions. These include: processing all payments, currency conversion, calculation and remittance of sales tax/VAT, fraud prevention/detection, chargeback protection, and, occasionally, other aspects of end-customer support. Simply put, the exact nature of customer relationships varies depending on the specific services provided by the MoR. 

What's the difference between a merchant of record and a seller of record (SoR)?

The key difference between a merchant of record and a seller of record (SoR) is that, while an MoR is responsible for all payment processing and relevant liabilities, an SoR is an entity legally responsible for the products or services that are being sold to a customer. An SoR could be the same entity that acts as the MoR, or a separate entity altogether. For example, a retail business that sells its products directly to customers through its own store or website acts as both the MoR and SoR. The same business can also only act as the SoR if it sells products through an MoR reseller.

What's the difference between a merchant of record and a payment service provider (PSP)?

As far as functionality, a PSP (like Stripe) typically only processes payments between a buyer and seller, while also managing associated transaction fees. For most MoR resellers, payment processing is merely one function among many. Other services frequently provided by MoR resellers include (but are not limited to): localization, currency conversion, sales tax/VAT handling, regulatory and export compliance, fraud prevention, subscription management, and end-customer billing support. 

Interested in learning more about Cleverbridge’s all-in-one ecommerce platform, and what makes us different from other third-party MoRs? To schedule a demo, click here: https://grow.cleverbridge.com/book-demo